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Traders & Tradesmen

By

Tim Annett

Updated March 9, 2007 12:28 p.m. ET

The February job market proved lukewarm, as expected, with payrolls growing modestly and the unemployment rate slipping. The data provided battered stock markets some breathing room, but gave some workers the blues.

From a Wall Street perspective, the employment report was pitch-perfect. The Labor Department said that employers added 97,000 jobs to payrolls last month and the unemployment rate eased to 4.5%. Both those numbers were basically in line with economists' forecasts and suggest the expansion is neither too fleet nor too leaden. With chatter about recession making the rounds, traders were primed for any economic news that might come skipping along in a blonde Goldilocks wig. Futures on stock indexes climbed on the news, and so did bond yields. Stocks lost momentum as the morning wore on, though, as some investors seemed reluctant to hang on to their positions over the weekend. At the same time, word that average hourly earnings gained and the jobless rate fell didn't seem to be setting off any inflation sensors. Economists reasoned that modest wage growth would keep consumer spending going, and some noted that the lower unemployment rate came as the labor force dwindled, mostly because of gnarly winter weather that kept would-be job seekers hiding under the covers. More data will need to wash in before the Federal Reserve changes its outlook on price trends.

The news was less cheering for many workers. Freezing February temperatures left many roofers and masons warming a sofa instead of swinging a hammer or handling a trowel, as construction companies slashed rolls by 62,000 jobs. That was the worst drop in that sector since January 1991. Manufacturing, another weak link in the economic chain in recent months, saw payrolls shrink by 14,000 positions. Even with the upward blip in hourly pay, the weakness in factory and housing employment could be a sour sign for incomes in the future. Building homes and cars pays fairly well, but Peter Morici, a business professor at the University of Maryland, pointed out that when work at construction sites or the factory floor dries up, workers get pushed into jobs in retail or hotels that offer much lower pay, less-generous benefits and fewer opportunities to acquire a skill or climb the ladder. For lawyers and MBAs, the outlook is much sunnier. Business and professional services hiring advanced by 29,000 during February.

In other economic data released this morning, the Commerce Department said the international deficit in trade of goods and services narrowed 3.8% to $59.12 billion in January. Exports advanced 1.1%, mostly on robust aircraft shipments by Boeing, and imports declined 0.5% despite an increase in energy imports, a sign that some of consumers' hunger for foreign televisions and cars has waned. The trade deficit with China kept growing, however, climbing to $21.27 billion from $19 billion in December, a 12% surge. Treasury Secretary Henry Paulson was in China this week making further calls for the government there to rein in its growing surplus, but Beijing has been reluctant to institute any major shifts. But elsewhere, demand for U.S. goods appears to be growing. The trade deficit with the euro zone narrowed quite sharply as economic growth on the continent gathers steam. The European Central Bank has been raising interest rates in an effort to keep a lid on inflation in the bloc.

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Some Modest Traction for Stocks As mentioned above, the release of the tepid February employment data made stock traders light up, but by the time midday rolled around the early shine was mostly off the major stock indexes. The Dow Jones Industrial Average climbed around 25 points to roughly 12285, while the Nasdaq Composite Index and the Standard & Poor's 500 Index advanced by just a handful of points each. Bond yields were higher and so was the dollar, which rose against the euro and yen. Crude-oil prices slouched slightly below $61 a barrel. Stocks in Europe were narrowly mixed, as were Asia benchmarks.

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Toyota Turns to Truck Discounts Toyota has been gobbling up market share from its Detroit rivals thanks to its line of fuel-efficient sedans, but when it comes to pickup trucks, the Japanese auto giant doesn't appear to be immune to the same forces that are crunching its competitors. Toyota says some of its dealers are offering as much as a $1,500 discount on the basic work-truck version of Toyota's newly redesigned Tundra pickup barely a month after it went on sale, highlighting the furious battle for that lucrative segment of the autos market. While the Tundra launch is still in its early stages, Toyota's top management in Japan is concerned about whether the company can meet its target of selling 200,000 new Tundras this year, according to senior executives who spoke to The Wall Street Journal on condition of anonymity. Toyota has manufacturing capacity to build more than 300,000 Tundras between two plants in Texas and Indiana, but some company officials are starting to worry that it rushed to build capacity at a time when higher fuel prices are narrowing the market for trucks.

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The FBI's Patriot Act Problems A Justice Department audit concluded that the Federal Bureau of Investigation improperly and in some cases illegally used the USA Patriot Act to obtain data about people, underreporting for three years how often it forced businesses to turn over customer data. Agents sometimes demanded the data without proper authorization, according to the audit's findings, and at other times improperly obtained telephone records in nonemergency circumstances. The audit blames agent error and shoddy record-keeping for the bulk of the problems and didn't find any criminal misconduct, but concluded that "the improper or illegal uses we found involve serious misuses of national security letter authorities." FBI Director Robert Mueller said the finding "of deficiencies in our processes is unacceptable."

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U.S., Brazil Sign Ethanol Accord The U.S. and Brazil signed an agreement that promotes the use of ethanol as an alternative fuel source in the Americas. President Bush and Brazilian President Luiz Inacio Lula da Silva said the pact should contribute to greater energy independence and economic prosperity. "It makes sense for us to collaborate for the sake of mankind," Mr. Bush said at Mr. Silva's side, after touring a fuel depot near Sao Paulo. "We see the bright and real potential for our citizens being able to use alternative sources of energy that will promote the common good." Mr. Bush has said he wants to work with Brazil, a pioneer in ethanol production, to push the development of alternative fuels in Central America and the Caribbean. But some critics fear that the agreement could lead to the creation of an OPEC-like ethanol cartel, while others say that the vast energy required to produce ethanol wipes out any gains in emissions that it may generate.

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EU Reaches Greenhouse Accord German Chancellor Angela Merkel said following a summit of European Union leaders that the group reached agreement on "ambitious and credible" targets to slash greenhouse-gas emissions and ensure that a fifth of the continent's energy comes from green sources such as wind and solar power. The draft also makes mention of how nuclear power could help cut greenhouse emissions. European Commission President Jose Manuel Barroso said the agreement showed Europe is able to take steps on warming. "We can say to the rest of the world, Europe is taking the lead, you should join us in fighting climate change," he said. British Prime Minister Tony Blair said a Group of Eight framework would create "the best chance" of getting the U.S., China and India to tackle climate change.

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China to Overhaul Reserve Management China Minister of Finance Jin Renqing said that the country's vast $1.07 trillion kitty of foreign-exchange reserves, which are currently managed by a branch of the central bank, will be split into two sizable chunks and managed in different styles. Right now, those reserves are stashed away mostly in low-risk, low-yield areas like U.S. government bonds, but China's bureaucrats may be beginning to feel more adventurous. Mr. Jin announced that a "foreign-exchange investment company will be set up under the leadership" of China's executive branch. The proportions of the split weren't disclosed. Also left unsaid was whether reserves might be used to purchase resources or technologies energy and environmental policy makers have craved. China's reserves have expanded mightily in recent years, and may top $2 trillion by the end of the decade.

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Russia Tosses PwC Offices Russian authorities raided the Moscow offices of auditor PricewaterhouseCoopers as part of its criminal case against the now-defunct oil company Yukos. Russian officials said they suspect senior executives of PwC's Russian operation could be criminally liable in a tax-evasion case that PwC lost in Russian court last year. Separately, Russian tax authorities in late December sued PwC to declare the auditor's reports on Yukos invalid, alleging it knowingly issued false reports and covered up wrongdoing at the oil company. PwC denies the allegations.

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Breeden, Applebee's Remain at Odds Talks between Breeden Capital and restaurant chain Applebee's International failed to produce an agreement after the hedge fund rejected the company's offer of two seats on its board of directors. Breeden Capital, which holds a 5% stake in Applebee's, is looking to take four seats on the Applebee's board. The fund's principal, Richard Breeden, says that the chain has underperformed and cost shareholders hundreds of millions of dollars in the process. Casual dining chains such as Applebee's and Outback Steakhouse have drawn lots of interest from activist investors drawn to their lackluster recent sales, heaps of cash and vast real-estate holdings.